Most subscription businesses outside software, such as clinics, gyms, trades and accounting firms, are valued on a multiple of maintainable profit, not revenue. Recurring revenue doesn't change the method, but it usually earns a higher multiple, because a buyer can see next year's income coming. Low churn, automatic billing and a business that runs without you push the multiple up.
Key takeaways
- Outside software, buyers mostly value on maintainable earnings: profit after paying a fair wage for the work the owner does.
- Recurring revenue earns a premium because it lowers risk, not because it's a different kind of business.
- The premium depends on how reliable the revenue is: churn, track record, how it's billed and how concentrated it is.
- The fastest way to lift your value is to grow the share of revenue that repeats automatically, then prove it with clean monthly numbers.
Software founders read about revenue multiples all the time. If you run a physio clinic, a cleaning business or an accounting firm, most of that doesn't apply to you. Your business will almost certainly be valued on profit. But the recurring revenue you've built still matters a lot. It's often the difference between a buyer paying a low multiple and a good one.
This guide explains how buyers think about it, so you can see what to work on before you sell. It's general information, not a valuation. For a formal figure, talk to a qualified valuer or accountant.
How buyers value a subscription business
There are two main methods, and which one applies depends mostly on the type of business.
| Method | Usually used for | How it works |
|---|---|---|
| Multiple of earnings | Clinics, gyms, trades, firms, retail, most small and medium businesses | Maintainable earnings (EBITDA, or profit after an owner's wage) × a multiple |
| Multiple of revenue | Software and fast-growing subscription companies | Annual recurring revenue × a multiple, set by growth, churn and margin |
If your business isn't software, assume the first method. The recurring revenue multiples guide covers the second in detail.
Step 1: work out your maintainable earnings
Maintainable earnings are the profit a new owner could expect to keep making. Buyers start with your accounts and adjust them:
- add back one-off costs that won't repeat, such as a fit-out or a legal dispute;
- add back personal expenses run through the business;
- deduct a fair market wage for the work you do, if you don't already pay yourself one;
- use an average of recent years if profit has been lumpy.
That last point is where recurring revenue starts to pay off. A business with steady monthly income has fewer lumpy years, so there's less for a buyer to argue about.
Step 2: why recurring revenue earns a higher multiple
A buyer is paying today for profit they'll earn in the future. The more certain that future looks, the more they'll pay. Recurring revenue makes it more certain in four ways:
- It's visible. A buyer can see how many members, plans or retainers are active, and what they pay each month.
- It survives the handover. Customers on automatic billing tend to stay through a change of owner. Customers who rebook out of loyalty to you may not.
- It smooths cash flow. When recurring income covers your rent and wages before the month starts, the business needs less working capital and carries less risk.
- It's measurable. Churn and lifetime value turn "our clients are loyal" into a number a buyer can check.
What makes your recurring revenue worth more (or less)
| Factor | Worth more | Worth less |
|---|---|---|
| Churn | Few customers leave each year | A large share leave each year |
| Billing | Automatic direct debit or card | Invoiced manually, paid when chased |
| Track record | Two or more years of monthly data | A plan launched last quarter |
| Concentration | Spread across many customers | A few customers make up most of it |
| Margin | Plans priced above the cost of serving heavy users | Plans that lose money on your best customers |
| Owner dependence | Customers deal with your team | Customers expect you personally |
| Contracts | Clear terms that transfer to a new owner | Handshake arrangements |
A worked example: two clinics
This is an illustration, not market data. Real multiples depend on your industry, size, location and the buyer.
Two allied health clinics each make A$300,000 a year in maintainable earnings.
- Clinic A books every appointment one at a time. Revenue swings with the seasons, and most patients come because of the founder.
- Clinic B earns 45% of its revenue from a monthly membership billed by direct debit, with two years of data showing fewer than 2% of members cancel each month. Patients see the whole team.
Suppose a buyer would pay 3 times earnings for Clinic A. Clinic B's revenue is more predictable and less tied to the founder, so the same buyer might pay 3.5 to 4 times. On A$300,000 of earnings, that extra half to full turn of multiple is worth A$150,000 to A$300,000. Same profit, different business.
Try it with your own numbers in the Subscription vs One-off Profit Calculator.
How to lift your value before you sell
- Grow the recurring share. Turn your most common repeat purchase into a plan. See how to start a subscription and the industry guides.
- Move everyone to automatic billing. It cuts churn and makes the revenue easier to verify.
- Track churn monthly. Use the churn calculator and keep the history. Buyers want a trend, not a guess.
- Check your plans make a profit. Price for your heaviest users, not the average. See how to price a subscription.
- Reduce owner dependence. Get your team delivering the plan so customers stay after you leave.
- Tidy your terms. Make sure contracts can transfer, and that your sign-up and cancellation flows meet Australia's subscription rules from July 2027. Non-compliant revenue becomes a due-diligence problem.
Selling in Australia? Read selling a subscription business in Australia and CGT when you sell.
FAQ
How are small subscription businesses valued in Australia?
Most small and medium businesses outside software are valued on a multiple of their maintainable earnings (profit after a fair wage for the owner). Recurring revenue doesn't change the method, but it usually earns a higher multiple because buyers see less risk.
Is a subscription business valued on revenue or profit?
Fast-growing software companies are often valued on revenue. Most other subscription businesses, such as clinics, gyms, trades and firms, are valued on profit, with a premium for revenue that repeats reliably.
What makes recurring revenue worth more to a buyer?
Low churn, a long track record, revenue spread across many customers, automatic billing, healthy margins and a business that doesn't depend on the owner.
How do I find out what my business is worth?
Start with your maintainable earnings and the share of revenue that's genuinely recurring. For a formal figure, use a qualified business valuer or accountant.
Robert Coorey, MBA
Robert is the author of The Subscription Playbook and Feed a Starving Crowd and a Director at BPAG Accountants in Sydney. More about Robert.
General information only, not financial, tax or valuation advice. Get advice for your situation before buying or selling a business.